Investment Blogs and BCE

Well maybe next year! The Globe and Mail had a feature today about favourite investing blogsites and Fulton Associates didn't make the list. I did have a quick perusal of some of the sites and came across an interesting idea regarding BCE.

I'm not sure this would be a good play for our club but if anybody is holding some BCE in their RRSP, you may consider buying some BCE bonds. Apparently, the bonds have traded down since last year when the private equity buyout was first announced because they're going to load up BCE with more debt making issues riskier. The bond markets are still pricing BCE bonds as if the deal is done. The stock markets however are pricing in some risk that the deal doesn't get done, and hence BCE still trades well below the takeover bid of $42.75.

The blog post does a better job I think of explaining this trade: http://www.wellingtonfund.com/blog/2008/05/01/another-way-to-play-bce/

The basic idea is to buy long both the common stock and the bond. If the deal goes through, the bond price already reflects this and you get the upside of the takeover premium. If the deal goes down, the stock tanks to the mid to high twenties but the bonds rally to cover some of the losses. Exactly how much the bonds rally is what I'm trying to figure out!?